International Herald Tribune
Who will replace us?
TUESDAY, JUNE 20, 2006
TOKYO A long-term crisis faces almost the whole of the industrialized world and parts of the developing world: the collapse of fertility. But remarkably little research has been done into the causes and possible remedies.

So Japan may prove by necessity the leader in finding answers to a challenge which is as great as the overpopulation one which faced the world 40 years ago and still haunts a few nations in Asia and Africa.

Japan has the world's oldest population, and slow decline has already set in. What is less known is that at today's fertility and survival rates, Japan's population will have more than halved to around 50 million by the end of this century.

Japan's 1.25 fertility rate is no worse than South Korea's or those of several countries in Europe, and better than bottom-of-the-table Singapore and Hong Kong. Almost no developed country is above the 2.1 needed to achieve long-term replacement. Cities in China also show very low fertility rates, which cannot be explained by the "one child" policy.

Of course fertility rates can go up as well as down. Why do they? Japan's minister for gender equality and social affairs, Kuniko Inoguchi, thinks the problem in Japan is gender inequality.

She told a recent World Economic Forum meeting here that the two best ways to increase fertility were to increase female participation in the labor force and to persuade men to do more household chores. Women were put off from marrying by the lack of gender equality, which is reflected in women being forced to quit jobs if they become pregnant and by the lack of maternity support and child-care facilities.

All that may be true enough for Japan, and probably for South Korea. It may also apply to southern Europe, where gender equality is a recent concept.

But it does not entirely explain Hong Kong, Taiwan and Singapore, which have very high rates of female work force participation and relatively good income equality.

Nor does it explain the very low rates in many European countries. Germany's fertility rates is barely higher than Japan's, despite a generally high level of gender equality, work force participation and income support. It is noticeably lower than in the Netherlands and Scandinavia.

Germany's response has been to shift some state support from broad-based family allowances to more baby-specific ones. Under the "Elterngeld" (parents' money) program approved last week, a woman who takes time off to have a baby will be guaranteed two thirds of her pay for 12 months.

In parts of northern Europe, a reversal of fertility rates may be under way thanks to official programs. However, there are suggestions that the increase is mainly due to new immigrant groups. The cultural norms of migrants is the most important reason why U.S. fertility, at 2.0, is higher than Europe and all of developed Asia. The rate for U.S. Hispanics is 2.9. In newly urban Asia, low fertility rates are also blamed on factors such overcrowding and on the high price of housing, which leaves little cash to spare for raising children even among two-income, middle class households.

The almost universal nature of the problem in developed countries clearly suggests that modern societies generally have not addressed the economics of child-rearing. Having children is seen as an option rather than a necessary social function.

The way in which GDP growth, the deity of modern economics, is calculated reflect the absurdity: investment in children is not an investment. The statistics ought to reflect not only the non-cash contributions of households to national wealth but the depreciation of the human capital stock due to aging.

Welfare systems have contributed to the problem by shifting responsibility for care of the old away from the family to the state.

As state welfare systems have in recent years come under pressure from lack of resources, there has been a shift to emphasizing that individuals should rely on increasing their own savings to protect them in old age. But this tends to increase savings via acquisition of financial assets and discourage investment in a younger generation, as is the case in Japan.

The decline in fertility to levels far below replacement is not irrational. It is a reaction to skewed economics as well as social policies.

Can aging but still inventive Japan grasp this essential truth and lead Asia and Europe to a new fertility equilibrium?